Pursuing a career in hedge fund management can lead to one of the most lucrative lifestyles offered. It is also an intense line of work that requires dedication, talent, and knowledge about how the financial markets and the economy operate. A tip for hedge fund management is to learn from different market cycles. Being prepared for the unexpected so that a fund can continue to operate even when investors are demanding their money back and the markets are volatile can be the difference between being forced to liquidate assets and staying afloat.
Given that hedge funds must adhere only to slight regulation and are not required to disclose investment strategies and formulas, clients are quite responsive to any amount of transparency that is provided. Disclosing a fund's performance history or simply remaining communicative with clients about some of the investment hurdles can go a long way. Hedge fund management may require some secrecy so that competitors do not adopt the same trading strategy, but distributing an investor letter and making one's self accessible to investors from time to time may prove beneficial.
Transparency is also supported by engaging third-party service providers because it adds accountability to hedge fund management. The operation of a hedge fund requires a prime broker and custodian for borrowing money for investments and the clearing of trades. Using third-party firms for these services provides another layer of transparency to investors.
Liquidity is another feature that hedge fund investors often appreciate. The less liquid the financial securities that hedge fund management decides to invest in, the more difficult it is to return capital, or money, to investors. This can be especially frustrating when a fund is losing money.
Putting up gates, or restrictions, on the amount of money that can be redeemed, or withdrawn, by investors is a way to protect the hedge fund. Allowing capital redemptions wins favor with investors. It is up to hedge fund management to strike a balance between the two so that a fund can continue to operate and investors are satisfied.
Investors who choose hedge funds are willing to pay high fees in order to earn the types of returns that these investment vehicles produce. When a fund is underperforming, it may serve hedge fund management well to negotiate fees with investors. The typical costs for investing in a hedge fund include a two percent management charge and a 20 percent performance charge. When fund performance declines, the performance charge is typically suspended until the fund regains the previous losses.
